What Happens When Central Banks No Longer Trust Each Other?

Normally I don’t try to answer the question to a title until the end of a writing and after providing some evidence for the conclusion, I will today. The answer to today’s title is easy, flat out, when central banks loose trust in each other you can pretty much expect chaos because of the loss of confidence! Before laying the case out for you, please remember we have been living in a system where “confidence” is not just everything, it’s the ONLY thing!

Recently we have seen several “coordination” fractures amongst the central banks themselves. It really started in late 2012 when Germany decided to ask the Banque du France, Bank of England and the Federal Reserve for some of their custodial gold back. This of course has been followed by the Dutch repatriating 120 tons in November and the Belgians and Austrians pondering the same actions. Why? Why are foreign central banks repatriating their gold held in London and New York? The answer is really simple, “trust”, or lack of it. You see, they can do math as well as we can. They know how much gold is produced globally from the mines and they also know how much gold is being taken off the market by China et al. After doing the most very basic of math, they know the “excess” gold is coming from “somewhere” and as I have been saying for several years now, that “somewhere” has to be the only place it exists in such large quantities …Western vaults!

The Germans who are a very meticulous society announced 85 tons of gold received (repatriated). In their announcement, they made clear that “all serial numbers matched”, however, they did not specify last year at this time regarding those measly 5 tons received. They took a lot of heat (including from yours truly) for melting down the bars. This time around, they assure us the serial numbers all matched and all bars were assayed, weighed and inspected. Why? Why such a detailed statement and why bother assaying if the serial numbers matched? I could write an entire article on this but suffice it to say, they wanted to make sure the “conspiratorial crowd” had no fodder. But, why include that all bars were inspected and assayed? Do they not trust the U.S. Fed? Do they really believe the Fed would go through the trouble of putting correct earmarks and serial numbers on golden covered tungsten? Do they really not trust the Fed or are they just trying to take any sticking points away …and in the process “implying” they don’t trust the Fed? Enough said.

Another area where “trust” looks to be breaking down is in the various central bank policies. Switzerland just broke ranks last Thursday and we received news after the close on Friday that Denmark has followed “negative(r)” interest rates. What Switzerland just did was what is best for Switzerland, NOT what is supposedly best for the central bank cabal. In essence, they pushed rates further negative and said we will not be buying any more euros. In other words, they announced they will no longer underwrite QE for Europe. Denmark followed and is basically saying the same thing.

We also heard from Japan (who’s economy is definitely in shrinking mode), they will not be employing any further QE than is already in place. Is this in step with a united central bank front? Maybe it is because the U.S. Fed wants you to believe they will be tightening later in the year. Is the plan to have Europe announce further QE monetizing later this week and take the baton from Japan? I suspect this is the plan but it has the same flaw discovered in the U.S. and then Japan, they will be taking too much “collateral” (there’s that word again!) out of the system which will actually tighten credit rather than loosen it. The next question of course is “who is next” with further QE? This answer is either the U.S. or, more likely ALL central banks still within the ranks!

I do want to mention Russia and more importantly China. These two have hooked up and in the case of Russia, dollars will no longer be used. China will have a difficult time avoiding all dollar transactions but they will surely be using less. As far as their central banks are concerned, they will skip to their own beat and not the one of the IMF nor the BIS. They will do what is best for them, not what is best for the Western central banks. Both Russia and China are courting and trying to pick off weak Western allies one by one. Russia is using energy while China is using other trade. The important thing to understand is their central banks are not part of the united front and in fact they (Russia in particular) are trying to divide and conquer the front.

I decided to write this piece because a “united front” is what has kept the coalition together for the last 6 years. The coalition has now been broken by the Swiss (and Danes). “Trust” and thus confidence are the only things that have held the game together for this long. The little guy knows “something” is wrong but for most part cannot put his finger on exactly what it is. If the man in the street begins to see infighting and quarrelling between central banks, he will have a further glimpse as to what is wrong. More importantly, if the populace sees clearly that trust between central banks is broken, then why should he “trust” also?

Taking this “trust” process just one step further, what will happen in another 2008 scenario? By this I am asking what will happen when financial institutions distrust one another and credit freezes up again? The last time around, the central banks stepped in and declared “you can trust US, so you can trust your counterparty”. I submit to you, another 2008 event is a mathematical certainty with just one caveat …if the central banks do not trust each other and are in an “every man for himself” mode, systemic confidence itself will fail this time around!

Please understand the “whole” of the above is about the creators of currency. Trust and confidence are necessary for their programs to work. Gold on the other hand does not have these issues because gold is no one’s liability and not created by man. Gold (and silver) require real work, real capital and real labor to “make”, once “made”, trust is never an issue! In fact, with what is surely coming, it is this very topic of “trust” which will separate gold (and silver) from all other monies!

31 Comments

Andrew
on January 21, 2015 at 12:48 pm

Thanks Bill. What about the Canadian move today? Is that in the same league as what the Danes have done? Are the Canadians also protecting themselves and not wanting their currency to depreciate further? You know – take the hit now instead of a worse one later? The Loonie has dropped, but in regards to the recent Swiss franc move, it went up. It’s hard for a non-finance person to keep up with the reason for all these moves!

Bill Holter
on January 21, 2015 at 1:47 pm

no, the move by Canada makes no sense. They cannot control oil by interest rates. The Looney was already weak, this may weaken it more.

lastmanstanding
on January 21, 2015 at 8:31 pm

Canadian’s live in the most inflated bubble on the planet. Wages, fuel, housing, food, etc. in Canada are so out of wack with reality they deserve what they get.

They come to US for the healthcare that they need (and were promised) because they have had for 40 years what our pos lawmakers have crapped in our lap…and exempt themselves.

But hey, as they say in Canada…no worries.

Canadians gave up long ago.

Bill Holter
on January 21, 2015 at 8:37 pm

“no worries” …isn’t that Australian? By the way, how do you really feel about it Lastman?

lastmanstanding
on January 22, 2015 at 8:52 am

Hi Bill. I have several Canadian friends who ran/ escaped here to Montana. At first, they all said that several times, so I asked, “what’s with the no worries thing.”

Reply was the same, “gub in Canada, has your back, no worries…”. Me…”then why are you here seeking citizenship?” If you leave your country, it’s because your not happy with it.

Hell, I’m not happy with what’s going on here, but I sure as hell am not leaving. I will be part of the solution. I’ll leave it at that.

I have several great friends who live in Texas and have places here. If you ever come to my neck, I’ll show you around, take you fishin and buy you a local beer…or 2.

My guess as to why the Central Banks want to get their gold back to their own countries is that physical gold has no counterparty, and is therefore the most efficient form of money to buy “better than gold” Chinese Yuan currency, which have been gold-backed since September 19, 2014. All other foreign currencies are subjected to an intense vetting process before the Yuan currency exchange is finalized.

Bill Holter
on January 21, 2015 at 1:46 pm

exactly Victor (on the no counter party part).

Theravaida
on January 21, 2015 at 3:42 pm

Wait, what??? What did he just say?

Chinese yuan is “better” than gold? And has been gold backed since September 19, 2014???

That sounds insane.

Bill Holter
on January 21, 2015 at 4:38 pm

I missed the “better than gold” part. I do not agree with this but “more efficient” if in fact the yuan IS being backed by gold. They have amassed a giant horde, at the right price they can back the yuan.

jerry
on January 22, 2015 at 4:43 am

Does anyone else have a spinning head after reading comments like these? wanting to know the truth but just getting more confused.

Bill Holter
on January 22, 2015 at 6:42 am

the truth is complicated and you must peel back many layers to get to it.

Richard
on January 21, 2015 at 1:32 pm

Bingo – Correcto Bill. This is precisely where we are headed this next go round – A “Credit Freeze Up” because the Central (Snakes) Banks will not Trust one another. This will of course halt “All” commerce. Excellent article Bill. People need to make preparations NOW.

Bill Holter
on January 21, 2015 at 1:45 pm

it’s every man (central bank) for themselves.

jerry
on January 22, 2015 at 5:55 am

Bill and Richard ….if what you say is true about every man for himself, this is exactly and precisely how I too see it coming down when this system collapses, then if mining shares are derivatives in this whole scheme of things how can any sane person put any trust what so ever into them. Aren’t derivatives the whole problem here? Please trying to understand thanks Bill.

Bill Holter
on January 22, 2015 at 6:43 am

think of mining shares as gold and silver being stored in the ground.

jerry
on January 22, 2015 at 6:24 pm

I am Bill and I want to but something seems so wrong, I guess it’s because there are so many crooks out there. Thank you Bill you are truly a good man, thanks for taking the time to spend with us it is awesome! You are awesome! Thank you so much. ” No greater love than this, that a man lay down his life for a friend “. Bible

Bill Holter
on January 22, 2015 at 8:59 pm

like they say in whacko land… if you see something, say something. Well, I see a lot!!!

fiatforever
on January 21, 2015 at 3:17 pm

Do you believe the US bond market could utterly collapse (even overnight) to point of being permanently destroyed? If so, would it likely be the first and does that mean all sovereign bonds connected to the Federal Reserve – through their nation’s central banks – will go down simultaneously? Or do you have any other idea as to the most likely sequence and outcome to what I’m asking? I’d assume most (if not all) respective stock markets will follow, systematically collapsing within moments as well?

Thank you in advance, Bill.

Bill Holter
on January 21, 2015 at 3:25 pm

because of the speed computers allow, I believe it will be a simultaneous domino effect.

Roger G. Mattingly
on January 21, 2015 at 4:54 pm

It’s been written about by some that if the United States no longer has their 8,000 plus tons of gold, then China might actually be able to take control of the world’s economy. What if it is discovered that the United States still actually has all 8,000 plus tons? Would that be a game changer?

Bill Holter
on January 21, 2015 at 4:56 pm

it would be shocking but no, our debt dwarfs everything.

Marco
on January 21, 2015 at 7:11 pm

WHAT HAPPENS WHEN CENTRAL BANKS NO LONGER TRUST EACH OTHER?

They start stealing from everyone, including each other, Also known as bail-ins and not keeping their word, unrigging the rig etc…LOL!!!

Bill Holter
on January 21, 2015 at 7:39 pm

yes.

Po Rich
on January 21, 2015 at 8:44 pm

If the central banks of supposed sovereign nations
are actually “owned” by each other, or a conglomeration
of institutions and families, how can they really act out of accordance with each other?
Perhaps these things which appear to be on the “small frontburner” are significant of some general changes of policy, for which the consequences /events can be later rationalized off as a result of a series of smaller individual events? In other words, without “exposing” the oneness of it all.
Such as how wars are done….much behind the scenes preparation, and then an event fabricated as the rationale?
I enjoy and respect your writings, but wonder if this is possibly not a case of mistrust, but of acting incrementally in consort? Someone with better insights than I might be able to find the likely end scenarios without having to wait….for the dominoes to fall.
Thank you again !

Bill Holter
on January 21, 2015 at 8:54 pm

as you will see in my writing that will post late this week, the “neutral” Swiss just changed sides.

Patricia
on January 21, 2015 at 10:26 pm

Bill, Thank You for everything you do to educate us & help us to prepare for the horror coming our way.

What are your thoughts about holding Exxon stock certificates in a safety deposit box in a bank? I have a feeling I know what the answer is but your answer is going to be seen by some family members I have been trying to wake up. I am referred to by some family as “you are one of those people”!

Thanks!

Bill Holter
on January 22, 2015 at 6:41 am

I cannot comment on Exxon itself but as for a safe deposit at a bank …not so “safe”!

dishman
on January 22, 2015 at 9:41 am

Bill,

This KWN article seems to differ from your information on the 2014 German gold repatriation as far as gold being melted/recast or not.

yes, I missed this. 50 tons were already recast here before being sent and the Germans were comparing THOSE serial numbers, not the original ones.. I believe the other 35 tons were London good delivery bars previously sitting in Kiev. 2 tons if you recall from Odessa were nicely painted lead bars.

dishman
on January 22, 2015 at 10:21 am

Ahh yes, thanks for the reply.

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